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SOURCE: |
Cost Accounting, Financial Management Services |
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DATE ISSUE: |
June 2019 |
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DATE OF LAST REVISION: |
June 2019 |
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RSOP NO: |
10.0 |
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RATIONALE: |
To provide guidance to recharge/service centers on inventory associated with the recharge activity. |
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RSOP: |
Uniform Guidance § 200.453 does not permit the recharge/service center to recover the cash outlay for inventory purchases in their annual rates. However, Uniform Guidance does allow the unit to include the (cost of goods sold) expense when the item is sold (and removed from inventory) in proposed rates. Only inventory that has been used/sold during the period should be recorded in a cost of goods sold object code.
Inventory Valuation in Rate Setting
As per Generally Accepted Accounting Standards (GAAP) all inventory should be recorded at the lower of cost or market value. This valuation appears as a current asset on the entity's balance sheet. The inventory valuation is based on the costs incurred by the entity to acquire the inventory, convert it into a condition that makes it ready for sale, and have it transported into the proper place for sale. You are not allowed to add any administrative or selling costs to the cost of inventory.
Physical Inventory Count
Policy FIN-ACC 390: Inventory specifies that a complete physical inventory count should be taken at least every fiscal year. While this is not required, FMS recommends that departments conduct their inventory count during the fourth quarter to ensure a more accurate valuation of the inventory at year-end.
Unusable Inventory
In the event that inventory items become damaged, obsolete or its market price has fallen to a level below the cost, the items should be written off. The amount to be written down should be the difference between the book value (cost) of the inventory and the amount of cash that the business can obtain by disposing of the inventory in the most optimal manner (market value).
In order to ensure compliance with Uniform Guidance, any proceeds generated from the disposal of inventory must be deposited in the service/recharge center account.
Recharge/Service Centers are permitted to temporarily maintain negative cash balances across fiscal years. Excess transfers of cash into a 66* account cannot be transferred out. The recharge account will have to ultimately reduce their rates to reduce the fund balance generated by the transfer in of cash.
Exceptions to this standard operating procedure require the approval of the University Controller or the Chief Accountant. |
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DEFINITIONS: |
External Activity: An activity that furnishes goods or services a non-Indiana University department. This includes sales to students, faculty and staff for non-IU business, or the general public.
Internal Activity : An activity that furnishes goods or services to another Indiana University department.
Recharge/Service Center Activity: A recharge/service center activity is an activity that furnishes goods or services to another Indiana University department for the convenience of the university and charges a fee directly related to, and not more than the allowable cost to provide the goods or services. |
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CROSS REFERENCE: |
OMB Uniform Guidance (PDF) "Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards"
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RESPONSIBLE ORGANIZATION: |
Organizations that bill other Indiana University departments for goods or services |